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Answer :
Final answer:
The Economic Order Quantity (EOQ) is a formula used to determine the optimal order quantity that minimizes the total inventory costs, which includes holding costs and ordering costs. For the given annual demand, holding costs, and ordering costs, the EOQ is approximately 693 units, so the closest answer to the question is 693.
Explanation:
To calculate the Economic Order Quantity (EOQ), we use the formula: EOQ = √(2DS/H), where:
- D = Annual demand (units)
- S = Ordering cost (cost per order)
- H = Holding costs (cost per unit per year)
For this question:
- D = 3000 units
- S = $2000
- H = $25
Plugging these values into the formula:
EOQ = √((2*3000*$2000)/$25)
EOQ = √(12000000/$25)
EOQ = √(480000)
EOQ = 693.14 units
The Economic Order Quantity is approximately 693 units, making the closest answer (c) 693.
Learn more about Economic Order Quantity (EOQ) here:
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